Indicators bode ill for Telecom

By PETER GRIFFIN

Telecom is set to take a major hit on its A$400 million ($448 million) investment in Hutchison 3G - and another step on the road to being swallowed by Telstra - if the gloomy predictions of leading telecoms commentator Paul Budde come to pass.

He yesterday described Telecom's investment in the third-generation mobile venture as "another dead-end street" for the company.

Hutchison 3G plans to commercially launch a high-speed mobile data service on a wideband CDMA platform in the first quarter of next year.

It promises to be Australia's first true 3G player, despite Telstra's bid to steal its thunder this week by launching a "3G" upgrade to its own CDMA network that nevertheless fails to deliver 3G data speeds.

Telecom has a 19.9 per cent stake in Hutchison 3G and is looking to pick up Hutchison mobile applications for use on its own network.

Budde, a critic of Telstra and Telecom, said he had offered Hutchison's management the most expensive bottle of French champagne in Australia if their venture succeeded.

"There's no future in it, not for the next five years. They're a year behind schedule, invested $3 billion in Australia alone and for what?"

He points to the sluggish demand for mobile data services, saying most carriers derive about 2 per cent of revenue from them.

As well as predicting a shaky Hutchison future, Budde reaffirmed his long-held opinion that Telstra would, eventually, swallow Telecom.

Telecom chief executive Theresa Gattung does not rule out that scenario. Last week she told Australian reporters there was room for the two to combine to form a major Australasian telco - one that would make the Qantas/Air New Zealand regulatory hurdles appear minor.

Budde said there would be only one major player in New Zealand in the long run.

TelstraClear would acquire Telecom or retreat to Australia, leaving a Telecom monopoly.

"The beancounters in TelstraClear are unhappy with Telstra for investing in NZ because it doesn't make sense," said Budde, who doubted TelstraClear would make its goal - being profitable by 2004.

He dismissed Telecom's mobile strategy, pointing to Vodafone now carrying more than 50 per cent of mobile traffic and monopoly of the youth market.

"[Vodafone's] GSM is not the most sexy technology, but it works," he said. "CDMA is not sexy with youth, the kids don't like it."

Telecom would face a conflict of interests in the next mobile phase - replacing fixed-line telephones, he said. Vodafone saw it as the future, but Telecom, deriving large profits from its copper network, would be less willing to change.

Budde's naysaying of 3G comes as the firm looks for up to A$2 billion in new debt funding. The Australian yesterday said two investment banks and parent company Hutchison Whampoa would lead the round.